Zinc smelter mulls output cut

Zhuzhou Smelter Group Company Ltd, the biggest zinc smelter in China by output, is going to cut back production, at a time when the international price for zinc ore is rising, according to the report by news agency Bloomberg.

Bloomberg quoted sources saying Zhuzhou Smelter Group is going to reduce output by 5,000 metric tons of zinc in January though the company did not give the reason for the cutdown.

Throughout 2016 the closure of major mines－such as Century and Lisheen in 2015 and production cuts from other mines including Glencore and Nyrstar－have allowed zinc concentrate prices to surge.

Swiss metals giant Glencore reported first half year production in 2016 declined 31 percent to 506,000 tons after the company suspended mines in Peru and downscaled its Australian operations.

The London Metal Exchange zinc price rebounded in November from $1,500 per ton to close to the month at $3,000 per ton.

The rising prices have put a cap on the treatment charges for domestic smelters. According to research from Fortunes Securities, treatment charges for imported zinc concentrates have plunged by nearly 66 percent to $30-35 per ton, from $90-100 in October, a drop of nearly 80 percent from the $135-150 level at the start of 2016.

Another reason for the supply shortage is stricter environmental regulations imposed in 2014. According to a report by Essence Securities, around 500,000 tons of zinc concentrate output were cut in 2015 because of environmental concerns.

The shutdown capacity did not come back on stream in 2016. In Fujian province for example a project called "Green Fujian" was initiated by the provincial government which led to the shut down of a wide range of smelters and mines in the province.

According to SunSirs China Commodity Data Group, the shortage of zinc concentrate supply in the global market will continue in 2017, providing more stimulus for the price of zinc to continue to rise.

The price is estimated to fluctuate between 20,000 yuan to 28,000 yuan ($2,880-$4,033) per ton. The peak in demand is expected to occur in October next year.